What is a mortgage? A guarantee or a contract?

Are you one of those who thinks that mortgage credit and mortgage are the same? If you are going to sign your loan papers to buy that dream house or apartment or even that commercial premises with which you hope to obtain greater financial freedom, you will see that the concept of mortgage appears . Let us explain what it is, what it is not and everything you need to understand its meaning . 

What is a mortgage? No, it is not a mortgage loan!

Mortgage and home equity are not synonymous. Let’s see why! The mortgage loan is a contract by which a financial institution lends money to a natural or legal person for the purchase of real estate: a house, apartment, commercial premises or even land. As a result of this contract, the mortgage is born .

In article 2309, the Ecuadorian Civil Code defines the mortgage as a ” pledge right that is applied to real estate that does not cease to remain in the possession of the debtor .” In other words, this asset becomes the guarantee that the debtor will pay the entire amount owed plus their respective interests. 

Therefore, the mortgage credit is a guaranteed obligation, while the mortgage is a real guarantee . The collateral is when the real estate assumes the role of guarantor, rather than a person. 

Can you only mortgage real estate?

No! In addition to real estate, in Ecuador it is also feasible to mortgage ships , which are actually personal property. To do so, you must abide by the rules and regulations established by the Commercial Code and not by the Civil Code. 

Once the surprise is over, you will wonder what kind of ships? The Commercial Code, in article 844, defines ships as any type of construction that floats , regardless of type, size and class, and that is intended to navigate with means of propulsion in order to transport cargo, passengers or meet other activities. 

What happens to the mortgage when the credit is defaulted?

When the debtor fails to comply with the payment of the loan under the terms of the contract, the financial institution can request the forced sale of the property that served as real guarantee . You can also make the mortgage effective; that is, take the property to auction it or sell it later. 

With both actions, the financial institution can ensure the total or partial payment of the debt. 

Mortgage lift: take a weight off your shoulders

The mortgage, technically, does not disappear by itself when the last installment of the mortgage loan is paid. For this to be annulled, it is necessary to make a mortgage survey and register it in the Property Registry .

The mortgage lift is a process that is done after paying the last installment of the mortgage loan, so that no debt on the property no longer weighs .

Remember that the real estate becomes a kind of guarantor of the credit, once the accounts are settled, you must remove that obligation, doing the survey .

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